The following discussion should be read in conjunction with Item 1, "Financial Statements" in Part I of this quarterly report on Form 10-Q. The discussion in this section contains forward-looking statements that involve risks and uncertainties. These forward-looking statements are based on our current expectations about future events. These expectations are subject to risks and uncertainties, many of which are beyond our control. For a discussion of important risk factors that could cause actual results to differ materially from those described or implied by the forward-looking statements contained herein, see the "Note with Respect to Forward-Looking Statements" and "Risk Factors" sections included in our Annual Report on Form 10-K for the year ended December 31, 2011 (the "Form 10-K").

Business Overview and Environment

Through our Transportation and Federal business segments, we provide engineering expertise in a variety of markets for public and private sector clients worldwide. We derive a significant portion of our revenue from United States of America ("U.S.") federal, state and local government contracting, with approximately 85% of our revenue for the nine months ended September 30, 2012 originating from these sources. As such, our financial results are heavily impacted by appropriations of public funds for infrastructure and other government-funded projects.

The budgetary uncertainty and constraints at all levels of government have caused a portion of our clients to curtail their spending on new and existing projects, resulting in a significant drag on our revenue. Specifically, several of our key transportation clients have continued to exercise caution in granting new infrastructure projects or entering into extensions of existing commitments, as well as placing certain funded projects on hold. These key Transportation clients, and in turn our business, rely heavily on the U.S. Federal transportation funding legislation for transportation & infrastructure related work. On July 6, 2012, the Moving Ahead for Progress in the 21st Century Act ("MAP-21") was signed into law, after a series of short-term extensions of the previous transportation funding legislation, the Safe, Accountable, Flexible, Efficient Transportation Equity Act - A Legacy for Users ("SAFETEA-LU"). MAP-21 provides funding for surface transportation programs of approximately $105 billion through September 30, 2014. MAP-21 is the first long-term highway authorization enacted since 2005 and is essentially a longer term extension of SAFETEA-LU. We are cautiously optimistic that MAP-21 will result in our key Transportation clients granting new infrastructure projects and entering into extensions of existing projects; however, to date we have yet to observe any significant change in contracting activity as a result of this legislation.

Portions of our business also rely heavily on funding from the Federal Aviation Administration ("FAA"). On February 14, 2012, the four-year, $63 billion FAA Modernization and Reform Act of 2012 was signed into law which gives the FAA its first long-term operating authority since 2007, ending a string of 23 stop-gap operating authorization measures. The bill has authorized $13.4 billion in Airport Improvement Program funding which increases project opportunities at existing and future air traffic facilities. This bill provides funding for aviation transportation infrastructure projects through 2015, and we expect to benefit from work that the Federal government as well as state and local governments will procure as part of this legislation, particularly in the aviation planning & design and construction management phase services. We have yet to observe any significant change in contracting activity as a result of this legislation.

In addition, our Federal segment relies heavily on contracting activity from the U.S. Federal Government, particularly with the Department of Defense ("DoD") and the Department of Homeland Security ("DHS"). As the U.S. Federal Government continues to attempt to address the U.S. Federal deficit there are concerns our Federal business may be impacted, particularly with our support of the United States Army Corps of Engineers ("USACE") operating in Afghanistan given the recent draw downs in the U.S. military efforts there. Additionally, while proposal activity on U.S. Federal projects remains steady, in our view the pace of project award activity has significantly waned in the first nine months of 2012, impacting our results of operations in our Federal segment.

The Budget Control Act of 2011, designed to reduce federal budget deficits by $2.1 trillion over the 2012-2021 period, includes caps on future discretionary appropriations, which may negatively impact portions of our business. If Congress does not act by December 31, 2012, a number of automatic spending cuts will begin in January 2013. Among them are approximately $454 billion in reductions to discretionary Defense spending and an additional $294 billion to discretionary non-defense spending, which may include infrastructure related programs. These potential reductions in spending may negatively impact those portions of our business that rely on federal funding for defense and infrastructure programs and projects and may have a material adverse impact on our results of operations and financial condition.

Furthermore, over the past year, we have observed a decrease in the level of higher margin design services being procured in the markets we serve and expect this trend to continue for the foreseeable future. As a result, we have seen decline in our margins over the course of this year. Due to the aforementioned macroeconomic issues impacting our public sector clients, we are anticipating a modest deterioration in our revenues for the remainder of 2012 and in 2013. In light of these circumstances, we completed an organizational realignment in the third quarter of 2012 that is designed to increase work sharing, enhance cross-selling and improve utilization. We have also adopted a performance improvement plan with the objective of reducing our cost structure by approximately $18.0 to $20.0 million in 2013. Non-recurring expenses to achieve these cost reductions are estimated at $1.0 million, substantially all of which are expected to be incurred in the fourth quarter of 2012.

Our Transportation segment provides services for Surface Transportation, Aviation, and Rail & Transit markets and our Federal segment provides services for Defense, Environmental, Architecture, Geospatial Information Technology, Homeland Security, Municipal & Civil, Oil & Gas, Telecom & Utilities and Water markets. Among the services we provide to clients in these markets are program management, design-build (for which we provide only the design portion of services), construction management, consulting, planning, surveying, mapping, geographic information systems, architectural and interior design, construction inspection, constructability reviews, site assessment and restoration, strategic regulatory analysis and regulatory compliance. In addition to the aforementioned impact of appropriations of public funds for infrastructure and other government-funded projects, we are also impacted by capital spending levels in the private sector and the demand for our services in the various engineering markets in which we compete.

Some of our significant contracts awarded during 2012 include:

• A $25.8 million, two-year Indefinite Delivery/Indefinite Quality ("IDIQ") contract to provide geotechnical engineering training to the Federal Highway Administration. • A $16.0 million bridge design contract with the Kentucky Transportation Cabinet for two crossings, one over Kentucky Lake located in Marshall County, and one over Lake Barkley located in Trigg County, both in western Kentucky. • Two five-year contracts totaling $15.0 million with the PennsylvaniaDepartment of Transportation to provide construction management and other services for Public Transportation in Pennsylvania. • A $12.3 million, five-year contract with the Department of General Services in Montgomery County Maryland to provide planning, design and construction services on the Montgomery County Multi-Agency Service Park and Public Safety Training Academy. • A $10.7 million, one-year contract with the USACE - Middle East District to provide construction management support to the Afghanistan Engineering District. - 20 -

Table of Contents • A $9.2 million, five-year IDIQ contract with the Federal Highway Administration to conduct research, develop tools and protocols and engage in bridge condition assessment and evaluation for its Performance Management of Bridges Project. • An $8.9 million contract with the Wisconsin Department of Transportation for the final design of the Daniel Hoan Bridge and the Interstate Highway 794 Lake Freeway in Milwaukee. • A $6.9 million architecture contract with the Connecticut Department of Transportation to develop final design plans for the New Haven-Hartford-Springfield Commuter Rail Station. • A $5.8 million architecture and engineering contract as a subcontractor to perform petroleum pipeline and tank leak and pressure testing for the Department of Defense. • A $5.1 million contract with the South Carolina Department of Transportation to develop final construction plans for a new 5.7 mile section of Interstate 73 between I-95 and U.S. Route 501 in Dillon County, South Carolina.

In September 2012, we were awarded a contract by the U.S. Environmental Protection Agency ("EPA") to provide technical support for assessments and watershed protection program activities. Baker was one of five awardees of the IDIQ contract. The maximum value of the contract for the entire five-year performance period for all awardees is $107.6 million. We have included $21.6 million in our unfunded backlog at September 30, 2012 for this contract.

In addition, we have been awarded by the General Services Administration an IDIQ contract for the DHS's United States Visitor and Immigrant Status Information Technology Program to provide program and project management and internal logistics support services. The IDIQ contract includes a one-year base period with four, one-year options and a maximum ordering limitation of $50 million for the entire contract period. To date we have been awarded task orders to provide a range of technical support services totaling $13.6 million.

Acquisitions and Divestitures

On October 3, 2011, we entered into a Stock Purchase Agreement to acquire 100% of the outstanding shares of RBF Consulting ("RBF"), an engineering, planning, surveying and environmental firm based in Irvine, California. As of the date of acquisition, RBF had a total of 17 offices located in California, Nevada and Arizona. RBF provides comprehensive planning, design and construction management and inspection services for its clients, including public and governmental agencies, the development community, private enterprise and non-profit agencies. The acquisition contributes to our long-term strategic plan by enabling us to expand geographically into the western United States and, through RBF's water resource experience and expertise, provides a platform for us to build a national water and wastewater practice. The results of operations for RBF are included in our Federal and Transportation segments for the three and nine months ended September 30, 2012.

In our 2009 filings, we presented an Energy business segment. Our former Energy segment ("Baker Energy") provided a full range of services for operating third-party oil and gas production facilities worldwide. On September 30, 2009, we divested substantially all of our subsidiaries that pertained to our former Energy segment (the "Energy sale"). Additionally, we sold our interest in B.E.S. Energy Resources Company, Ltd. ("B.E.S."), an Energy company, on December 18, 2009 to J.S. Technical Services Co., LTD., which is owned by our former minority partner in B.E.S. As such, the Energy business has been reclassified into "discontinued operations" in our accompanying condensed consolidated financial statements. The results for the three and nine months ended September 30, 2012 and 2011 give effect to the dispositions.

Our earnings per diluted common share for continuing operations were $0.45 for the nine months ended September 30, 2012, compared to $1.38 per diluted common share reported for the corresponding period in 2011. Our total earnings per diluted common share were $0.53 for the nine months ended September 30, 2012, compared to $1.39 per diluted common share reported for the corresponding period in 2011.

Our revenues from continuing operations were $452.2 million for the nine months ended September 30, 2012, an 18% increase from the $382.2 million reported for the same period in 2011. This increase in revenues was primarily driven by the addition of $73.4 million in revenues from RBF, which was acquired in the fourth quarter of 2011, and increases in certain key Transportation segment projects, partially offset by decreases in work performed for Federal Emergency Management Agency ("FEMA").

Net income from continuing operations for the nine months ended September 30, 2012 was $4.3 million compared to $12.8 million for the same period in 2011. These results were driven by a decrease in our Federal segment's operating income, primarily as a result of increased costs related to pursuing international work and a decrease in work performed for FEMA, as well as an increase in amortization expenses and selling, general and administrative expenses driven by the acquisition of RBF. In addition, net income from continuing operations for 2012 was unfavorably impacted by higher tax expense as a percentage of taxable income. These unfavorable results were partially offset by an increase in operating income in our Transportation segment primarily as a result of increases in revenue volume and an increase in equity income from our unconsolidated subsidiaries.

We had net income from discontinued operations related to our former Energy segment of $0.8 million for the nine months ended September 30, 2012, as compared to $0.1 million for the same period in 2011. These results were primarily attributable to adjustments of foreign tax accruals related to our former Energy business, partially offset by changes in our reserves for legacy insurance liabilities.

Results of Operations

Effective January 1, 2012, certain services that were previously managed by our Transportation segment have been transferred to the Federal segment. Reclassifications have been made to the prior year business segment results to reflect the current year presentation.

On January 1, 2012, we changed from a traditional month-end calendar close cycle to a 4-4-5 calendar close methodology. Under this new methodology, each quarter is comprised of 13 weeks, which includes two 4-week months and one 5-week month. This change in methodology facilitates accelerating our monthly close, is common in our industry and did not have a material impact on our period-over-period comparisons.

Comparisons of the Three Months Ended September 30, 2012 and 2011

In this three-month discussion, unless specified otherwise, all references to 2012 and 2011 relate to the three-month periods ended September 30, 2012 and 2011, respectively.

Revenues

Our revenues totaled $145.2 million for 2012 compared to $131.1 million for 2011, reflecting an increase of $14.1 million or 11%. This increase in revenues was primarily driven by the addition of $23.1 million in revenues from RBF, which was acquired in the fourth quarter of 2011, partially offset by decreases in work performed for the DoD and the Central Texas Mobility Constructors.

Transportation. Revenues were $78.3 million for 2012 compared to $76.2 million for 2011, reflecting an increase of $2.1 million or 3%. The following table presents Transportation revenues by client type:

The increase in our Transportation segment's revenues for 2012 was driven primarily by an increase in work performed for the Wisconsin, Virginia, Indiana and New Jersey Departments of Transportation totaling $6.2 million and an increase in revenue associated with the addition of $5.8 million in revenues from RBF. This was partially offset by decreases in work performed for the Central Texas Mobility Constructors on U.S. Highway 290 ("US 290") of $4.8 million, decreases in services provided to the Pennsylvania, Louisiana and South Carolina Departments of Transportation totaling $3.2 million and a decrease in work performed for the New Jersey Turnpike Authority of $2.0 million.

Federal. Revenues were $66.9 million for 2012 compared to $54.9 million for 2011, reflecting an increase of $12.0 million or 22%. The following table presents Federal revenues by client type:

The increase in our Federal segment's revenues for 2012 was primarily driven by the addition of RBF's revenues totaling $17.3 million. This increase was partially offset by a period-over-period decrease of $2.8 million related to services provided for the DoD, a decrease of $1.4 million for work performed related to the Alaska gasline development and a decrease of $0.8 million for oil and gas pipeline related work performed for one of our private sector clients.

Gross Profit

Our gross profit totaled $22.8 million for 2012 compared to $27.1 million for 2011, reflecting a decrease of $4.3 million or 16%. Gross profit expressed as a percentage of revenues was 15.7% for 2012 compared to 20.7% for 2011. The decrease in gross profit for 2012 is primarily attributable to lower utilization, the impact of unfavorable project mix and an increase in amortization expenses of $0.8 million related to our recent acquisitions, partially offset by the addition of RBF's gross profit of $1.7 million, net of acquisition related amortization expense of $1.3 million and the recognition of non-recurring overhead adjustments related to our FEMA contracts of $1.0 million for several prior contract years. In addition, gross profit for 2011 was favorably impacted by a $1.2 million net benefit related to the recovery of corporate indirect taxes. Total gross profit includes $0.5 million of Corporate expense for 2012 compared to $0.4 million of Corporate expense in 2011 that were not allocated to our segments. These unallocated corporate amounts are related to our self-insured professional liability claims activity in our wholly-owned insurance captive.

Direct labor and subcontractor costs are major components in our cost of work performed due to the project-related nature of our service businesses. Direct labor costs expressed as a percentage of revenues

were 27.8% for 2012 compared to 26.9% for 2011, while subcontractor costs expressed as a percentage of revenues were 21.7% for 2012 compared to 20.5% for 2011. Expressed as a percentage of revenues, direct labor costs remained relatively unchanged in the Transportation segment and increased in the Federal segment, while subcontractor costs increased in both our Federal and Transportation segments period over period.

Transportation. Gross profit was $13.5 million for 2012 compared to $14.0 million for 2011, reflecting a decrease of $0.5 million or 4%. The decrease in gross profit for 2012 is primarily attributable to an increase in design-build pursuit efforts, which traditionally have a lower margin until the primary design-build project is awarded, partially offset by the increase in revenues for 2012. Transportation's gross profit expressed as a percentage of revenues was 17.2% in 2012 compared to 18.4% in 2011. Gross profit expressed as a percentage of revenues decreased as a result of lower utilization.

Federal. Gross profit was $9.8 million for 2012 compared to $13.5 million for 2011, reflecting a decrease of $3.7 million or 27%. Gross profit decreased period over period as a result of increased overhead costs related to pursuing international work, lower utilization, less favorable project mix and a $1.2 million net benefit related to the recovery of corporate indirect taxes that favorably impacted 2011, which was partially offset by the addition of RBF's gross profit of $0.3 million, net of acquisition related amortization expense of $1.0 million and the recognition of non-recurring overhead adjustments related to our FEMA contracts of $1.0 million for several prior contract years. Gross profit expressed as a percentage of revenues decreased to 14.7% in 2012 from 24.5% in 2011. Gross profit expressed as a percentage of revenues was unfavorably impacted by the increase in acquisition related amortization expense, lower utilization, less favorable project mix and the aforementioned recovery of corporate indirect taxes in 2011.

Selling, General and Administrative Expenses

Our SG&A expenses totaled $21.4 million for 2012 compared to $17.7 million for 2011, reflecting an increase of $3.7 million or 21%. Our SG&A expenses expressed as a percentage of revenues increased to 14.7% for 2012 from 13.5% for 2011. SG&A expenses for the Transportation segment were $11.9 million for 2012 compared to $11.1 million for 2011, reflecting an increase of $0.8 million or 7%. SG&A expenses for the Transportation segment expressed as a percentage of revenues increased to 15.2% for 2012 from 14.6% for 2011. SG&A expenses for the Federal segment were $9.5 million for 2012 compared to $6.6 million for 2011, reflecting an increase of $2.9 million or 43%. SG&A expenses for the Federal segment expressed as a percentage of revenues increased to 14.2% for 2012 from 12.0% for 2011. SG&A expenses increased period over period primarily due to additional SG&A expenses of $3.4 million from RBF, which includes $0.2 million of intangible asset amortization.

Overhead costs are primarily allocated between the Transportation and Federal segments based on that segment's percentage of total direct labor. As a result of the allocation, SG&A expenses by segment directly fluctuated in relation to the increases or decreases in the Transportation and Federal segments' direct labor as a percentage of total direct labor. Also included in total SG&A expenses for 2012 were nominal Corporate-related costs, which were not allocated to our segments.

Other Income/(Expense)

"Other income/(expense)" aggregated to income of $0.2 million for 2012 compared to $0.3 million for 2011. "Other income/(expense)" is primarily comprised of equity income from our unconsolidated subsidiaries, interest income, interest expense and gains and losses on the sale of fixed assets.

Our provisions for income taxes from continuing operations resulted in effective income tax rates of approximately 56% and 36% for the three months ended September 30, 2012 and 2011, respectively. The variance between the U.S. federal statutory rate of 35% and our forecasted effective income tax rate for these periods is primarily due to state income taxes and permanent items that are not deductible for U.S. tax purposes. Positively impacting our forecasted effective income tax rate for the three months ended September 30, 2011 was approximately $0.8 million of foreign tax credits partially offset by $0.7 million of non-deductible acquisition related costs.

The difference between our three month effective income tax rate of 36% and our tax expenses recorded in our Condensed Consolidated Statement of Comprehensive Income for the three months ended September 30, 2011 related to our ability to utilize additional foreign tax credits totaling $1.0 million.

Income from Discontinued Operations

As a result of the sale of our Energy business, we have presented those results on a discontinued operations basis. Reflected in our unaudited Condensed Consolidated Balance Sheets are both liabilities and assets primarily related to Baker Energy's workers' compensation insurance through September 30, 2009. As part of the sale of Baker Energy, the buyer agreed to assume the liabilities associated with the workers' compensation insurance, subject to certain indemnifications, as of September 30, 2009. However, corresponding liabilities representing the reserves associated with this insurance are included in our unaudited Condensed Consolidated Balance Sheets as this insurance is written to us, rather than to a Baker Energy entity. As such, we are required to maintain reserves for this insurance in our unaudited Condensed Consolidated Balance Sheets. As the buyer assumed the liabilities associated with this insurance as of the closing balance sheet, we have also recorded a corresponding receivable from the buyer representing the amount of the aggregate insurance liabilities as of September 30, 2009 for the Energy Business, less reimbursements made to us through September 30, 2012. We have also indemnified the buyer for any taxes in excess of the amounts accrued as of September 30, 2009.

Net income from discontinued operations was $0.3 million for 2012 compared to $0.1 million in 2011. The 2012 and 2011 results of discontinued operations are primarily driven by changes in our reserves for legacy insurance liabilities. The income tax benefit attributable to discontinued operations was nominal in both 2012 and 2011.

Comparisons of the Nine Months Ended September 30, 2012 and 2011

In this nine-month discussion, unless specified otherwise, all references to 2012 and 2011 relate to the nine-month periods ended September 30, 2012 and 2011, respectively.

Revenues

Our revenues totaled $452.2 million for 2012 compared to $382.2 million for 2011, reflecting an increase of $70.0 million or 18%. This increase in revenues was primarily driven by the addition of $73.4 million in revenues from RBF, which was acquired in the fourth quarter of 2011, and increases in certain key Transportation segment projects, partially offset by decreases in work performed for FEMA.

Transportation. Revenues were $242.7 million for 2012 compared to $219.4 million for 2011, reflecting an increase of $23.3 million or 11%. The following table presents Transportation revenues by client type:

The increase in our Transportation segment's revenues for 2012 was driven primarily by period over period increases in services provided for the Wisconsin, Virginia, Indiana, Kentucky and New Jersey Departments of Transportation totaling $21.8 million, the addition of $16.3 million in revenues from RBF and an increase in work performed for the Maryland Aviation Administration of $3.1 million. The increase in revenues was partially offset by decreases in services provided for the Pennsylvania and Louisiana Departments of Transportation totaling $5.8 million, work performed for the Central Texas Mobility Constructors on US 290 of $5.3 million, work performed for the New Jersey Turnpike Authority of $3.4 million and a decrease in design work performed as a subcontractor for various projects related to the Utah Department of Transportation I-15 Corridor Reconstruction project totaling $2.7 million.

Federal. Revenues were $209.5 million for 2012 compared to $162.8 million for 2011, reflecting an increase of $46.7 million or 29%. The following table presents Federal revenues by client type:

The increase in our Federal segment's revenues for 2012 was primarily driven by the addition of RBF's revenues totaling $57.1 million. These increases were partially offset by the net decreases in work performed for FEMA of $5.5 million as compared to 2011, a decrease of $2.7 million for work performed related to the Alaska gasline development and a decrease in work performed for the DoD of $1.0 million.

Gross Profit

Our gross profit totaled $72.1 million for 2012 compared to $75.7 million for 2011, reflecting a decrease of $3.6 million or 5%. Gross profit expressed as a percentage of revenues was 15.9% for 2012 compared to 19.8% for 2011. The decrease in gross profit for 2012 is primarily attributable to an increase in amortization expenses of $2.5 million related to our recent acquisitions, lower utilization, the impact of unfavorable project mix and a $1.2 million net benefit related to the recovery of corporate indirect taxes that favorably impacted 2011. These decreases were partially offset by the addition of RBF's gross profit of $6.6 million, net of acquisition related amortization expense of $3.9 million, the recognition of non-recurring overhead adjustments related to our FEMA contracts of $1.0 million for several prior contract years and a recovery of $1.1 million related to claims due from a professional liability insurer that is in liquidation. Total gross profit includes Corporate expenses of $1.4 million for 2012 compared to Corporate expenses of $0.7 million in 2011 that were not allocated to our segments. These corporate expenses are related to self-insured professional liability claims activity in our wholly-owned insurance captive.

Direct labor and subcontractor costs are major components in our cost of work performed due to the project-related nature of our service businesses. Direct labor costs expressed as a percentage of revenues were 26.7% for 2012 compared to 27.0% for 2011, while subcontractor costs expressed as a percentage of revenues were 23.3% for 2012 compared to 20.5% for 2011. Expressed as a percentage of revenues, direct labor costs decreased in our Transportation segment and increased in our Federal segment, while subcontractor costs increased in both our Transportation and Federal segments period over period.

Transportation. Gross profit was $41.4 million for 2012 compared to $38.4 million for 2011, reflecting an increase of $3.0 million or 8%. The increase in gross profit for 2012 is primarily attributable to increased revenue volume compared to 2011, a recovery of $0.6 million related to claims due from a professional liability insurer that is in liquidation and a decrease in amortization expense of $0.6 million. The increase in gross profit was partially offset by an increase in design-build pursuit efforts, which traditionally have a lower margin until the primary design-build project is awarded and a one-time award fee of $1.1 million for work related to the US 290 project in Central Texas that favorably impacted 2011. Transportation's gross profit expressed as a percentage of revenues decreased slightly to 17.0% in 2012 from 17.4% in 2011. Gross profit expressed as a percentage of revenues decreased as a result of the aforementioned impact of the US 290 award fee on 2011 results, offset by the professional liability claims recovery and a decrease in amortization expense.

Federal. Gross profit was $32.1 million for 2012 compared to $38.0 million for 2011, reflecting a decrease of $5.9 million or 15%. Gross profit decreased as a result of increased overhead costs related to pursuing international work, lower utilization, less favorable project mix and a $1.2 million net benefit related to the recovery of corporate indirect taxes that favorably impacted 2011. The decreases were partially offset by the addition of RBF's gross profit of $4.7 million, net of acquisition related amortization expense of $2.9 million, the recognition of non-recurring overhead adjustments related to our FEMA contracts of $1.0 million for several prior contract years and a recovery of $0.5 million related to claims due from a professional liability insurer that is in liquidation. Gross profit expressed as a percentage of revenues decreased to 15.4% in 2012 from 23.4% in 2011. Gross profit expressed as a percentage of revenues was unfavorably impacted by the aforementioned increase in acquisition related amortization expense, lower utilization and less favorable project mix partially offset by the impact of the aforementioned overhead adjustments and the recovery from a professional liability insurer that is in liquidation. In addition, gross profit as a percentage of revenues in 2011 benefited from the recovery of Corporate indirect taxes of $1.2 million.

Selling, General and Administrative Expenses

Our SG&A expenses totaled $66.1 million for 2012 compared to $57.0 million for 2011, reflecting an increase of $9.1 million or 16%. Our SG&A expenses expressed as a percentage of revenues decreased to 14.6% for 2012 from 14.9% for 2011. SG&A expenses for the Transportation segment were $36.7 million for 2012 compared to $35.1 million for 2011, reflecting an increase of $1.6 million or 5%. SG&A expenses for the Transportation segment expressed as a percentage of revenues decreased to 15.1% for 2012 from 16.0% for 2011. SG&A expenses for the Federal segment were $29.4 million for 2012 compared to $21.9 million for 2011, reflecting an increase of $7.5 million or 34%. SG&A expenses for the Federal segment expressed as a percentage of revenues increased to 14.0% for 2012 from 13.5% for 2011. SG&A expenses increased period over period primarily due to additional SG&A expenses of $11.6 million from RBF, which includes $0.5 million of intangible asset amortization, partially offset by the period-over-period decrease in SG&A personnel, excluding the impact of RBF.

Overhead costs are primarily allocated between the Transportation and Federal segments based on that segment's percentage of total direct labor. As a result of the allocation, SG&A expenses by segment directly fluctuated in relation to the increases or decreases in the Transportation and Federal segments' direct labor as a percentage of total direct labor.

"Other income/(expense)" aggregated to income of $1.9 million for 2012 compared to income of $0.6 million for 2011. "Other income/(expense)" is primarily comprised of equity income from our unconsolidated subsidiaries, interest income, interest expense, realized gains and losses on investments and gains and losses on the sale of fixed assets. In 2012, the equity income from our unconsolidated subsidiaries was primarily driven by $1.8 million from our Louisiana TIMED Managers ("LTM") joint venture. We do not anticipate LTM to maintain this level of income in future periods.

Income Taxes

Our provisions for income taxes from continuing operations resulted in effective income tax rates of approximately 44% and 37.5% for the nine months ended September 30, 2012 and 2011, respectively. The variance between the U.S. federal statutory rate of 35% and our forecasted effective income tax rate for these periods is primarily due to state income taxes and permanent items that are not deductible for U.S. tax purposes. Positively impacting our full-year forecasted effective income tax rate for the nine months ended September 30, 2011 was approximately $1.0 million of foreign tax credits partially offset by $0.7 million of non-deductible acquisition related costs.

The difference between our September 30, 2012 full-year forecasted effective income tax rate of 44% and our tax expense recorded in our Condensed Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2012 relates to statute expirations totaling $0.2 million. The difference between our September 30, 2011 full-year forecasted effective income tax rate of 37.5% and our tax expense recorded in our Condensed Consolidated Statement of Comprehensive Income for the nine months ended September 30, 2011 related to our ability to utilize our remaining foreign tax credits totaling $1.1 million in addition to certain statute expirations totaling $0.2 million.

Income from Discontinued Operations

As a result of the sale of our Energy business, we have presented those results on a discontinued operations basis. Net income from discontinued operations was $0.8 million for 2012 compared to $0.1 million in 2011. As part of the Energy sale, we have indemnified the buyer for certain legacy costs related to our former Energy segment in excess of amounts accrued as of the transaction date. These costs include but are not limited to insurance and taxes. The 2012 results of discontinued operations are primarily attributable to adjustments of foreign tax accruals related to the Energy business due to statute of limitation expirations during the period, partially offset by changes in our reserves for legacy insurance liabilities. The income tax benefit attributable to discontinued operations was $0.1 million in 2012 compared to a nominal expense in 2011.

Contract Backlog

Funded backlog consists of that portion of uncompleted work represented by signed contracts and/or approved task orders, and for which the procuring agency has appropriated and allocated the funds to pay for the work. Total backlog incrementally includes that portion of contract value for which options have not yet been exercised or task orders have not been approved. We refer to this incremental contract value as unfunded backlog. U.S. government agencies and many state and local governmental agencies operate under annual fiscal appropriations and fund various contracts only on an incremental basis. In addition, our clients may terminate contracts at will or not exercise option years. Our ability to realize revenues from our backlog depends on the availability of funding for various federal, state and local government agencies; therefore, no assurance can be given that all backlog will be realized.

As of September 30, 2012, our funded backlog consisted of $408.4 million for our Transportation segment and $226.9 million for the Federal segment. Of our total funded backlog as of September 30, 2012, approximately $307 million is expected to be recognized as revenue within the next year. Additionally, we expect our sources of revenue within the next year to include recognized unfunded backlog and new work added. Due to the nature of unfunded backlog, consisting of options that have not yet been exercised or task orders that have not yet been approved, we are unable to reasonably estimate what, if any, portion of our unfunded backlog will be realized within the next year.

Liquidity and Capital Resources

We have three principal sources of liquidity to fund our operations: our existing cash and cash equivalents, cash generated by operations and our available capacity under our Unsecured Credit Agreement ("Credit Agreement"), which is with a consortium of financial institutions and provides for a commitment of $125.0 million through September 30, 2015. Subsequent to September 30, 2012, we reduced our revolving credit facility capacity to $50.0 million.

Our cash flows are primarily impacted from period to period by fluctuations in working capital. Factors such as our contract mix, commercial terms, days sales outstanding ("DSO") and delays in the start of projects may impact our working capital. In line with industry practice, we accumulate costs during a given month then bill those costs in the following month for many of our contracts. While salary costs associated with the contracts are paid on a bi-weekly basis, certain subcontractor costs are generally not paid until we receive payment from our customers. As of September 30, 2012 and December 31, 2011, $18.9 million and $23.7 million, respectively, of our accounts payable balance was comprised of invoices with "pay-when-paid" terms. As a substantial portion of our customer base is with public sector clients, such as agencies of the U.S. Federal Government as well as Departments of Transportation for various states, we have not historically experienced a large volume of write-offs related to our receivables and our unbilled revenues on contracts in progress. We regularly assess our receivables and costs in excess of billings for collectability and provide allowances for doubtful accounts where appropriate. We believe that our reserves for doubtful accounts are appropriate as of September 30, 2012, but adverse changes in the economic environment may impact certain of our customers' ability to access capital and compensate us for our services, as well as impact project activity for the foreseeable future.

* Current ratio is calculated by dividing current assets by current liabilities.

Cash Provided by Operating Activities

Cash provided by operating activities was $21.7 million and $15.5 million for the nine months ended September 30, 2012 and 2011, respectively. Non-cash charges for depreciation and amortization increased by $3.7 million to $13.1 million in 2012 from $9.4 million in 2011 due primarily to the amortization of intangible assets acquired as part of the acquisition of RBF in the fourth quarter of 2011.

Our cash provided by operating activities for 2012 increased compared to 2011, primarily as a result of a decrease in unbilled revenues and an increase in billings in excess of revenues. Our total DSO in receivables and unbilled revenues, net of billings in excess of revenues, was 91 days as of September 30, 2012 compared to 90 days as of December 31, 2011.

Cash Provided by/Used in Investing Activities

Cash provided by investing activities was $9.3 million for the nine months ended September 30, 2012, primarily as a result of cash inflows of $12.3 million related to the net sales of available-for-sale securities, offset by cash outflows of $2.0 million related to capital expenditures and the payment of the remaining balance of the Net Working Capital adjustment of $1.0 million related to the RBF acquisition.

Cash used in investing activities was $10.7 million for the nine months ended September 30, 2011, primarily as a result of cash outflows of $4.7 million related to the net purchases of available-for-sale securities and $2.9 million for capital expenditures, as well as $3.1 million of net cash used to acquire JMA Architects, Inc. ("JMA").

The majority of our 2012 capital additions pertain to computer software and hardware purchases, office furniture and office related leasehold improvements. We also obtained the use of various assets through operating leases, which reduced the level of capital expenditures that would have otherwise been necessary to operate our business.

On September 30, 2010, we entered into a revolving credit facility with a consortium of financial institutions that provides for an aggregate commitment of $125.0 million with a $50 million accordion option through September 30, 2015. The Credit Agreement includes a $5.0 million swing line facility and a $20.0 million sub-facility for the issuance of letters of credit ("LOCs"). As of September 30, 2012 and December 31, 2011, there were no borrowings outstanding under the Credit Agreement and outstanding LOCs were $5.9 million and $8.4 million, respectively. Subsequent to September 30, 2012, we reduced our revolving credit facility capacity to $50.0 million.

The Credit Agreement provides pricing options for us to borrow at the bank's prime interest rate or at LIBOR plus an applicable margin determined by our leverage ratio based on a measure of indebtedness to earnings before interest, taxes, depreciation and amortization ("EBITDA"). Our Credit Agreement also contains usual and customary negative covenants for transactions of this type and requires us to meet minimum leverage and interest and rent coverage ratio covenants. Our Credit Agreement also contains usual and customary provisions regarding acceleration. In the event of certain defaults by us under the credit facility, the lenders will have no further obligation to extend credit and, in some cases, any amounts owed by us under the Credit Agreement will automatically become immediately due and payable.

The inability of one or more financial institutions in the consortium to meet its commitment under our Credit Agreement could negatively impact our business. Currently, we believe that we will be able to readily access our Credit Agreement as necessary.

Financial Condition & Liquidity

As of September 30, 2012, we had $67.1 million of cash and cash equivalents. We principally maintain our cash and cash equivalents in accounts held by major banks and financial institutions. The majority of our funds are held in accounts in which the amounts on deposit are not covered by or exceed available insurance by the Federal Deposit Insurance Corporation. Although there is no assurance that one or more institutions in which we hold our cash and cash equivalents will not fail, we currently believe that we will be able to readily access our funds when needed.

Our principal uses of cash in recent years have been to fund our operations, including capital expenditures and to pay for acquisitions. With the completion of our acquisitions of The LPA Group Incorporated, ("LPA") in 2010 and RBF in 2011, we successfully expanded our geographic footprint in the United Sates and intend to focus our efforts on capitalizing on the potential cost and revenue synergies that we believe they present. While we may consider potentially accretive add-on acquisitions, we expect to focus primarily on the integration of LPA and RBF and improving our overall results of operations, rather than significant additional transactions.

We believe that we have substantial capital resources, with $67.1 million of cash and cash equivalents and no borrowings at September 30, 2012. On November 8, 2012, we announced a cash dividend of $0.14 per common share payable on December 19, 2012 to shareholders of record on November 28, 2012. While we intend to pay regular cash dividends on a quarterly basis for the foreseeable future, the payment of dividends is at the discretion of the Board of Directors and is subject to, among other things, the availability of and needs for our capital resources, restrictions under our Credit Agreement and other factors. In addition, on November 8, 2012, we announced that the Board of Directors had authorized an up to $10.0 million stock repurchase program. Purchases are expected to be made from time to time in open-market or privately negotiated transactions as circumstances warrant.

We view our short and long-term liquidity as being dependent upon our results of operations, changes in working capital and our borrowing capacity. We believe that the combination of our cash and cash equivalents, cash generated from operations and our existing Credit Agreement will be sufficient to meet our operating and capital expenditure requirements for the next twelve months and beyond.

There were no material changes in the contractual obligations and off-balance sheet arrangements disclosed in our 2011 Form 10-K.

Critical Accounting Estimates

There were no material changes in the critical accounting estimates disclosed in our 2011 Form 10-K.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board ("FASB") issued changes to Accounting Standards Codification ("ASC") Topic 350, Intangibles - Goodwill and Others, to simplify how entities, both public and non public, test goodwill for impairment. The change provides an entity with an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The amended guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. We adopted this standard on January 1, 2012, and it did not have a material impact on our unaudited condensed consolidated financial statements.

In June 2011, the FASB issued changes to ASC Topic 220, Presentation of Comprehensive Income, to require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. The change eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The items that must be reported in other comprehensive income and when an item of other comprehensive income must be reclassified to net income were not changed. The amended guidance must be applied retroactively and is effective for interim and annual periods beginning after December 15, 2011, with earlier adoption permitted. We adopted this standard on January 1, 2012, and it had no impact on our unaudited condensed consolidated financial statements, as we already presented one of the options that is acceptable under ASC Topic 220.

In May 2011, the FASB issued changes to ASC Topic 820, Fair Value Measurement, to conform existing guidance regarding fair value measurement and disclosure between Generally Accepted Accounting Principles and International Financial Reporting Standards. These changes clarify the application of existing fair value measurements and disclosures, and change certain principles or requirements for fair value measurements and disclosures. The adoption of changes to ASC Topic 820 is effective for interim and annual periods beginning after December 15, 2011. We adopted this standard on January 1, 2012 and it did not have a material impact on our unaudited condensed consolidated financial statements.